You might consider becoming a registered investment advisor (RIA) if you’re interested in helping investors manage their assets. Earning a college degree in finance or a related field is usually the first step, but there are other a number of criteria to meet before you or your company can officially be considered a registered investment advisor.
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Understanding Registered Investment Advisors (RIAs)
What is a registered investment advisor and what do they do? In simple terms, RIAs work with individuals and businesses to manage their investment portfolios. A registered investment advisor primarily focuses on investing and may work with high-net-worth clients. They may also provide financial advice in other areas.
RIAs act as fiduciaries, meaning they must always act in the best interest of their clients. They must also register with the U.S. Securities and Exchange Commission (SEC) or their state regulatory agency.
In exchange for their services, RIAs can charge their clients fees. Investment advisors may charge an hourly rate, a flat fee or a percentage of assets under management (AUM). A typical financial advisor’s fee is around 1% annually, although a registered advisor may charge more or less, depending on the services offered, the types of clients they work with and the amount of money they manage. For example, a 2023 AdvisoryHQ analysis found that advisors, on average, charge between 1.18% and 0.59% when providing asset management services. The average AUM fee for a $1 million portfolio was 1.02%, according to the study.
What Does a Registered Investment Advisor Do?
Registered investment advisors work on behalf of their clients to help them manage their investments. In terms of what that actually includes, an advisor’s duties and responsibilities can include the following:
- Discussing client goals and using those conversations as a framework for selecting investment options.
- Assessing client portfolios to see how well they align with client goals.
- Staying up to date on economic trends that have the potential to impact client portfolios.
- Meeting with clients to discuss their portfolios and develop strategies for managing them.
- Analyzing clients’ tax situations to find areas where they may be able to glean savings.
Investment advisors rely on a variety of skills to perform those duties. Some of the most critical skills for an investment advisor include good communication skills, analytical skills, mathematical skills and organizational skills.
How to Become an Investment Advisor, Step by Step
As mentioned, getting an education is typically a precursor to becoming an investment advisor. That may mean completing only a bachelor’s degree, but some advisors may hold master’s degrees as well. Here’s what comes next if you’re ready to get started on the investment advisor career path.
Step 1: Take the Series 65 Exam
The Series 65 exam is a multiple-choice test that’s designed to gauge your financial knowledge. Some of the areas the test covers include federal securities law and investment advice. The Financial Industry Regulatory Authority (FINRA) administers the test. FINRA oversees the issuance of a number of securities licenses.
To pass, you must get 94 out of 130 questions correct. The test has 140 questions in total, including 10 unscored questions that don’t count toward your final grade.
Step 2: Consider Getting Certified
Investment advisors who pass the Series 65 exam are not required to hold additional professional designations. However, you may consider obtaining one or more credentials to enhance your knowledge and expertise so you can attract more clients.
Some of the designations you might pursue include:
- CERTIFIED FINANCIAL PLANNER™ (CFP)
- Chartered Investment Analyst (CFA)
- Chartered Financial Consultant (ChFC)
- Chartered Investment Counselor (CIC)
Each of these designations has its own requirements you’ll need to meet in order to qualify. Holding certain designations may allow you to waive the Series 65 exam as a prerequisite for registering in some states.
Step 3: Assess Where to Register
Investment advisors must register with the SEC or with their state securities agency. The size of your AUM and other factors will determine which entity you must register with. SEC registration is required in the following situations:
- The investment advisor has $110 million or more in AUM
- The investment advisor has $25 million or more in AUM and has its principal office and place of business in a state where it is exempt from registration, or a state that requires registration but does not subject investment advisors to examination (this currently only applies to New York)
- When an investment advisor advises registered investment companies or business development companies
- If the advisor is a foreign investment advisor with aggregate AUM of $25 million or more attributable to 15 or more U.S. clients or investors in private funds managed by the advisor
- If the advisor is otherwise permitted to register with the SEC by rule or order
- The investment advisor has less than $100 in AUM but it operates in 15 or more states
Investment advisors with between $90 million and $110 million can typically choose between SEC registration and state-level registration.
Step 4: File Form ADV
To register with the SEC or a state securities commission, you must first create an online account with the Investment Advisor Registration Depository (IARD). Doing so allows you to file Form ADV, which is your registration document.
There are two parts to the form. Part one includes questions about your business structure and ownership, the number of clients you have, your employees, affiliations, business practices and whether you’ve been subject to any disciplinary actions.
The second part of Form ADV is your disclosure. This is a written document in which you describe the types of services you offer, how you’re paid, your professional background and any conflicts of interest that might exist. This disclosure must be made available to clients and prospects who are considering using your services.
Step 5: Finalize Your Registration
Once the SEC or state securities commission receives your Form ADV, it’s subject to review. Additional information may be requested or you may be asked to explain or clarify answers that you’ve provided. You’ll also need to create a written document outlining your compliance program, which explains your operating procedures in detail.
Assuming that your registration is approved, you’ll be able to start working with clients. You’ll need to update your Form ADV annually to reflect any changes to your business, including the number of clients you work with or the total assets you have under management.
You may need to post a surety bond if you’re registering with your state securities commission. A surety bond is typically required when an investment advisor is unable to meet minimum net worth guidelines.
Registered Investment Advisor Next Steps
After you’ve registered as an investment advisor, you’re ready to begin offering investment advice to clients. If you’re starting from scratch with your client base, you’ll need to consider how you’ll go about finding them.
You might try cold-calling or cold-emailing first. Those forms of outreach can be time-consuming, but they’re tried and true methods for finding clients. Networking is another option, as you may have people in your network who might be willing to offer referrals to help you get your first clients.
If you’re trying to focus your time on other areas of your business, you might try an online lead-generation tool instead. SmartAsset AMP, for instance, can bring qualified leads to you, saving you valuable time. You can decide which leads you’d like to follow up on.
Bottom Line
There’s no shortcut for how to become an investment advisor and the process can take some time to complete. It may be worth the wait, however, if you’re hoping to move your career forward and expand your horizons.
Tips for Growing Your Advisory Business
- SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
- Social media marketing can help you grow your business if you’re creating content that’s designed to attract your ideal clients. If you’re not leveraging digital marketing’s potential yet, that’s something you may want to devote some time to doing if you’re hoping to increase your visibility online.
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